Savvy homebuyers who want to save the most money are jumping into the market now. That’s because home prices are at or near bottom, and mortgage rates have dropped FURTHER due to continued economic turmoil. Mortgage analysts can’t agree on how long these rates will stick around.
With a mortgage loan, your interest expenses can really add up. This is because your monthly mortgage payment includes much more interest than principal during the initial years of your loan term. So for the first several years, most of your money is going to the lender to pay them for the interest rate, not toward the principal balance to pay off the loan. Having a low interest rate saves you a larger amount of money than you might expect. Today’s rate was actually 4.375%, so even lower than the 4.500% example in exhibit A.
A.
$200,000 Loan Balance
4.500% Interest
30 year fixed loan
Monthly Principle & Interest Payment: $1013
Interest paid over the first 5 years: $43,801
Interest paid over life of loan: $164,813
B.
$200,000 Loan Balance
5.500% Interest
30 year fixed loan
Monthly Principle & Interest Payment: $1135
Interest paid over first 5 years of loan: $53,903
Interest paid over life of loan: $208,808
C.
$200,000 Loan Balance
6.500% Interest
30 year fixed loan
Monthly Principle & Interest payment: $1264
Interest paid over first 5 years of loan: $64,084
Interest paid over life of loan: $255,088
So, if you’re ready to buy a house but you find yourself waiting for something you can’t quite explain – jump in now. A smart buy at low costs now is much like giving yourself a raise…a $90,275 raise for moving forward now versus later.
Courtesy of Jen Bell & JJ Lee Kwai @Rose City Mortgage